EMERGENCY ASSESSMENT
TO PAY JUDGMENT

Boards have the authority and the obligation to special assess their membership to pay judgments against their associations. The 5% limitation on special assessments is rescinded as provided for in Civil Code §1366(b) and the board must impose the assessment regardless of any opposition by the membership.

In the case of O'Toole Co., Inc. v. Kingsbury Court, a 46-unit association voted down an assessment to pay a $200,000 judgment against it. The court ordered the board to levy an emergency assessment to pay the judgment regardless of the membership's vote to the contrary.

QUESTION: We had a case in which an owner sued the association because of mold. The board agreed to a settlement that requires a large special assessment against the membership. Since the assessment is greater than 5% of the association's budget, is the board required to get membership approval?

ANSWER: In other words, does the settlement constitute an "extraordinary expense" as provided for by Civil Code §1366(b)? If it does, the board may impose the assessment without membership approval. If not, the assessment must be voted on by the membership. The answer depends on the nature of the settlement. If it's is a garden variety settlement, I do not believe it qualifies as an "order of the court" and the assessment would, therefore, require membership approval. If the settlement is a stipulated judgment, or the acceptance of a statutory offer which results in a judgment, then it might qualify. You board should seek legal counsel before imposing the assessment.

Updated by ADAMS KESSLER 8/9/2008